Investors Don't See Light At End Of Sýn hf.'s (ICE:SYN) Tunnel

Sýn hf.'s (ICE:SYN) price-to-sales (or "P/S") ratio of 0.3x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Telecom industry in Iceland have P/S ratios greater than 1.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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View our latest analysis for Sýn hf

What Does Sýn hf's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Sýn hf over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Sýn hf's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Sýn hf's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.5%. As a result, revenue from three years ago have also fallen 6.9% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 2.1% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Sýn hf's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does Sýn hf's P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Sýn hf revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 3 warning signs for Sýn hf (2 don't sit too well with us!) that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.